More than two years overdue, the U.S. Treasury yesterday issued its Report to Congress: "How to Modernize and Improve the System of Insurance Regulation in the United States." See FIO Report. Before we take another step, put aside for a moment all the politics of the Affordable Care Act. This Report deals with the more basic issue of whether, or to what extent, the century-old system of state-by-state insurance regulation should move to a more national, or should I say, international, system of regulation. Whatever one may think of the wisdom of federally-chartered insurance companies, and the insurance industry as a whole is split, the Report makes one thing fairly clear: the pace of change in this area will be slow.
Except for the domain of health insurance and employee benefits, insurance and insurance companies remain regulated by state insurance commissions as well as the powerful National Association of Insurance Commissioners (NAIC), which, unsurprisingly, opposes federal chartering. Proponents of federal charters (and hence, federal regulation) argue primarily that insurance has been for a long time an international business with international problems, and, arguably, neither the Louisiana Insurance Commissioner nor the current President of the NAIC (who happens to be the same person, Jim Donelon) sits with authority at the international table. The time has come, so say proponents, for the U.S. insurance industry to have the clout it should have in the global arena.
A well-reasoned article in an October 2013 issue in LifeHealthPro by Arthur D. Postal and Elizabeth Festal, see Insurance Regulation, discusses the pros and cons of federal regulation as well as developments after implementation of the Federal Insurance Office in the Dodd-Frank Act. The FIO was established to gather information about the business of insurance and give recommendations to Congress. As the authors of this article point out, after the 2008-2009 economic meltdown and the near collapse of AIG, pressures within the industry for uniform regulatory standards and oversight have only grown.
As for the Report itself, don't look for a federal takeover of insurance any time soon. The Report concludes that:
"[T]he proper formulation of the debate at present is not whether insurance regulation should be state or federal, but whether there are areas in which federal involvement in regulation under the state-based system is warranted. . . . In all events, federal involvement should be targeted to areas in which involvement would solve problems resulting from the legal and practical limitations of regulation by states, such as the need for uniformity or the need for a federal voice in U.S. interactions with international authorities. [Report p. 5-6].
Although the Report does list some 37 suggestions for reform and federal regulation, the overarching message to the states is, look at what you are doing, and let's talk about it. This federal "involvement" is a process that clearly will take some time.
David S. White